After a painful stretch of five consecutive down months, September couldn’t come fast enough for Horseman Global, which we previously dubbed “the world’s most bearish hedge fund”, due to its exposure which, while fluctuating, has been net short for the past 6 years and most recently had a net short position of -47.33%, even more bearish than it -43.5% net last month.
In September, the fund finally rebounded, rising 1.8% – its first up month since March -bringing its YTD return to -8.79%, with “gains coming from the long book and the short book. The currency book lost money” according to CIO Russell Clark’s latest monthly letter.
So after what is setting up to be Horseman’s most painful year since 2016 in which the fund lost 24%, is Clark ready to throw in the bearish towel, stop “fighting the Fed”, and join the countless ranks of momentum chasers?
Not at all. One month after Clark wrote in his September letter to clients that he is confident the time for the next big short has come, the Horseman CIO says in the latest letter to clients to “make no mistake, this fund is run to make a positive return for investors. You might think with the fund being net short I am trying to position it as a hedge, or that I am super cautious, but this could not be further from the truth. Why not just buy the market, or buy momentum then? Well, my personal experience of “buying assets that are going up” has been decidedly mixed. What I have found really works for me is doing detailed analysis of an industry, working out what has to happen from basic business and economic logic and having positions in these areas, ready to take advantage of the outcome.”
Unwilling to join the bullish crowd, Clark then explains his preferred strategy as follows:
The idea is, while we are waiting for a downturn which I see as inevitable, these different assets will trade independently of each other, but hopefully produce a small upward bias to the fund. Then when the inevitable occurs, these previously uncorrelated assets become correlated and the fund has a huge move. It’s an odd strategy I know, but it does allow the fund to run net short for prolonged periods of time.